Medium Term Financial Strategy (MTFS) 2025/26 - 2029/30

The Medium-Term Financial Strategy (MTFS) includes financial projections analysis and context that supports the Council's policy approach 'Making Gateshead a Place Where Everyone Thrives'. The Council recognises there are huge financial pressures on not just Council resources, but those of partners, local businesses and residents. To deliver on the policy approach over the next five years, the Council will remain resolute in its determination to make Gateshead a place where everyone thrives. This means the Council's decision-making including resource allocation through the budget will be policy and priority led and driven in line with the Council Plan; The strength of Gateshead is the people of Gateshead.

Background

The MTFS provides an estimate of the level of revenue resources available to the Council over the medium term and estimates the financial consequences of the demand for Council services. It assists financial planning and strategic financial management by providing the financial context within which the Council budget will be set.

The medium-term financial outlook remains uncertain and is subject to a high level of volatility characterised by the triple impact of historic underfunding, increasing demand and more recently high inflation. On 29 July 2024, the Chancellor of the Exchequer delivered a statement to Parliament accompanied by a policy paper on £22 billion public spending pressures. The Chancellor outlined that the overall funding totals for 2025/26 will be confirmed at the Budget on 30 October 2024, and a multi-year Spending Review covering at least three financial years will then conclude in Spring 2025.

During the debate following the statement, the Chancellor expressed an intention to introduce multi-year finance settlements for local government, but no further detail has been provided, including when this proposal might be implemented. As such, the assumptions in the refreshed MTFS remain subject to significant uncertainty at this stage until further information becomes available. The Council is focusing on what it can control to mitigate these risks, but it emphasises that urgent reform of local government funding is required, including the quantum of funding, the method on which it is distributed, and multi-year settlements to allow for effective planning.

These areas have been repeatedly communicated to the Government through lobbying responses to the Local Government Finance Settlement. They were further communicated to the Ministry of Housing, Communities and Local Government (MHCLG) through the Council's Productivity Plan in July 2024.

The financial assumptions in this report will be reviewed following the Chancellor's Budget on 30 October 2024.

Local authorities are legally obliged to set a balanced budget each year and to ensure they have sufficient reserves to cover any unexpected events. Therefore, to legally balance the budget the Council must make spending plans affordable by matching these to the estimated funding available over that time. Staying the same will not be an option. The Council is required to change to deliver its priority outcomes within the funding available.

The Council will ensure that resources are used to maximum effect and allow the Council to continue to deliver new and better ways of working and invest to improve the efficiency of services provided. However, without an increase in the quantum of funding for local authorities alongside a fairer distribution, it is evident the estimated funding gap will have an inevitable impact on both the nature and scope of services that the Council is able to deliver. The Council will aim to manage the process of change to its services effectively through the Budget Approach.

The Council will continue to have significant revenue and capital budgets to invest and deliver services consistent with the delivery of the Council Corporate Plan and the key priority outcomes of "Making Gateshead a Place where Everyone Thrives". The Council will retain its vision for the future of the Borough through promoting development and economic growth and by working with partners. This will assist in maintaining the medium-term financial sustainability of the Council.

Reserves Summary

A breakdown of each reserve available to support the budget, and balances as at 31 March 2024 are outlined below;

• Council General Reserve £16.2m- This is a statutory fund that acts as a contingency and allows the Council to meet any unforeseen costs. If the council overspend in a year this fund will meet that liability. The minimum balance on the reserve is 3% of the net revenue budget in line with MTFS principles.
• Financial Risk and Resilience £23.6m- This reserve is held in respect of key financial risks identified through risk management process. Balances include; Insurance £6.9m, grant clawback £4m, workforce development costs £4.1m, commercial risk £3.0m, and budget flexibility £5.6m.
• Thrive £6.2m-This reserve is held to support the Council Thrive priorities of Economic, Housing and Environmental Investment (£2.7m), Poverty, Health and Equality Investment (£3.0m), and Discretionary Social Fund £0.5m.
• Budget Sustainability £22.2m- As agreed in December 2021 an approach to help support the timings of achieving significant budget savings and Thrive outcomes whilst still dealing with pandemic impacts over three-year period. £5m is committed in 2024/25 with a further £8.5m proposed in 2025/26, and £4m in 2026/27. A plan to replenish this reserve forms part of the MTFS.

The proposed use of reserves relies upon a planned pipeline of demand mitigations, budget cuts and efficiencies over the period to achieve a balanced budget that is sustainable in future years.

Consultation

The MTFS sets a financial context for the approach to budget. The Council's budget planning framework will be supported by the development of integrated impact assessments (IIAs) for draft budget proposals as appropriate. These assessments include identifying possible disproportionate impact in relation to the protected characteristics as described within the Equality Act 2010 and identify potential mitigation where applicable.

The Council maintains its strong commitment to equality, believing that all groups and individuals within the community and its workforce have equal opportunity to benefit from the services and employment it provides. IIAs help the Council to arrive at informed decisions and to make the best judgements about how to target resources.

The Leader of the Council has been consulted on this report.

Alternative Options

There are no alternative options.

Implications of Recommended Option

Resources:

• Financial Implications- the Strategic Director, Resources and Digital, confirms that financial context is contained within the report and appendices. Any direct implications will form part of the budget planning framework and identification of budget proposals. The Council is legally required to set a balanced budget annually and should plan to achieve this using a prudent set of assumptions. As such, the Government's decisions about 2025/26 funding and beyond will be significant and could have a material impact on the wider budget process.
• Human Resources Implications- The need to support Council employees as much as possible through changes is recognised. Any direct implications will form part of the budget planning framework and identification of budget proposals.
• Property Implications-   No direct property implications. Any direct implications will form part of the budget planning framework and identification of budget proposals.

Risk Management Implication- Risks arising from the direct impacts of this strategy will form part of the Council's approach to the budget planning framework.

Equality and Diversity Implications- An equality impact framework has been developed to assess budget proposals.

Crime and Disorder Implications- No direct crime and disorder implications. Direct implications arising from the impacts of this strategy will form part of the Council's approach to the budget planning framework and consultation process.

Health Implications- No direct health implications. Direct implications arising from the impacts of the Health and Wellbeing Strategy this will form part of the Council's approach to the budget planning framework and consultation process.

Climate Emergency and Sustainability Implications- The MTFS provides a framework with the express objective of achieving a sustainable financial position over the medium term. Addressing climate change remains a priority of the Council and the MTFS frames the resources available.

Human Rights Implications- No direct human rights implications.

Area and Ward Implications- All areas of the Borough are covered by the principles set out in this strategy.

Background Information

• Provisional Revenue Outturn 2023/24 - Cabinet 25 June 2024
• Revenue Monitoring 2024/25 Q1 - Cabinet 16 July 2024